Thoughts, Ideas, and Concepts by Sandra Parks

Posts tagged ‘Government’

Unexpected rate hikes. Over-limit fees. Double-cycle billing. Those are just a few of the credit-card practices that have trapped millions of consumers into a life of constant worry over mounting debt. In less than a week, these practices will be history.

Unexpected rate hikes. Over-limit fees. Double-cycle billing. Those are just a few of the credit-card practices that have trapped millions of consumers into a life of constant worry over mounting debt. In less than a week, these practices will be history.

Exceptions, Caveats, Loopholes:

• Rate hikes are allowed if you’re more than 60 days late with a payment.
• Some banks have already found a way around the rate-hike issue, by increasing card users’ regular interest rates to as high as 29.9% and then refunding a part of that rate for each month that the customer pays on time.
• Double-cycle billing, although prohibited, can technically still exist for credit cards that don’t have grace periods.
• Issuers have been calling consumers asking them to opt in for over-limit fees in exchange for lowering that fee, says Chi Chi Wu, a staff attorney with the National Consumer Law Center, a consumer advocacy group. What they’re not saying is that if people don’t opt in, the transaction will be denied and they will not be charged over-limit fees in the first place, Wu says.

Billing Statements, Payments and Disclosures

• Billing statements must be sent 21 days before the due date.
• Your due date should be the same date each month.
• Payments are considered on time when received by 5 p.m. on the due date or the next business day after a holiday or weekend.
• Payments above the minimum must be applied to the highest-rate balance first.
• Each monthly statement must include information on how long it would take you to pay off your balance if you make minimum payments only and the total you’ll pay, including interest and principal; and how much you need to pay each month in order to pay off your balance in 36 months and the total you’ll pay, including interest and principal.
• Statements must also include a warning that by making only minimum payments you will pay more interest and it will take you longer to pay off your debt, as well as a toll-free number to call if you want to be referred to a credit-counseling service.

Exceptions, caveats, loopholes:

If you make a purchase under a “deferred-interest” plan (such as “No interest for six months,” for example), the company may let you choose to apply extra amounts to the deferred-interest balance. Otherwise, for two billing cycles before the end of the promotional period, your entire payment must be applied to that balance. Carrying a “deferred-interest” balance is a risky proposition altogether, says Wu: Unless the balance is paid in full over the specified period, the company will charge all interest retroactively once the promotional rate expires. “We think deferred-interest plans should have been banned,” Wu says.

College Students and Young Adults

• No credit cards for college students unless co-signed by a parent or they can demonstrate “ability to pay.”
• No credit-limit increases if you are under 21 and have a co-signer without that co-signer’s permission.
• No credit-card marketing and freebies on college campuses.

Exceptions, Caveats, Loopholes:

• Issuers will likely start appealing to parents to co-sign their children’s credit cards. And the Federal Reserve has specified that issuers have the option of keeping the parent on the hook even after the young person turns 21, Wu says. “If that younger person keeps the credit card for 20 years, the co-signer is liable that whole time.”
• Issuers are not allowed to give out freebies for signing up for a credit card on or near a campus — which still allows them to set up shop near popular off-campus venues and offer freebies to everyone, whether or not they apply.

With new regulations starting in less than a month, you may need to take stock of your credit card portfolio to determine which cards’ terms are changing to your benefit and which feature changes that can hit you in the wallet.

The most important thing to do, says Lauren Bowne, staff attorney at San Francisco-based Consumers Union, is be aware of your card terms. So much has changed in recent months that consumers need to pay attention to what is and isn’t featured in the credit card.

In addition to the moves to make before the law takes effect, good credit card habits remain important, some of them even more so.

Don’t go overboard. Making too many changes within a short period — as in opening or closing several accounts at once — can hurt your credit score. If you’re closing or adding new accounts and about to apply for a loan, it may be better to keep the cards you currently have — even if the terms are worse. Closing an account that you’ve had for a long time can negatively impact the portion of your credit score related to credit utilization ratio.

Pay your bills on time. Even though the credit card law gives you a 60-day window for late payments before banks can impose penalty interest rates on existing balances, payments not received by the due date will show up as bad marks on your credit report.

Pay more than the minimum amount due. It will help you pay your credit card debt off faster. The new law mandates that your billing statement include a prominent notice of how long it will take you to pay off your debt. For many, that could be a wake-up call.

If you’re having trouble paying your bills, get help from an accredited nonprofit credit counselor. Your monthly credit card statement will feature a toll-free number to call for help. The credit card reform law requires that issuers prominently display a toll-free number that consumers can call to get the names of at least three consumer credit counseling agencies that have been approved by the U.S. bankruptcy courts for credit and debt management counseling.

Stay on top of your mail. The new law requires that credit card issuers notify you of changes to your account. That means you can’t leave that mail unopened on the table for a week. Some changes are likely to have deadlines and time elements that can hurt you financially if you don’t act quickly.

Bowne, from the consumer group, recommends consumers create a list of their credit card accounts that includes key terms (i.e., the interest rates for purchases, balance transfers and cash advances, fees, due dates and grace period). She recommends marking your calendar to remind yourself when promotional rates end so that you can be sure to pay off the balance before higher interest rates begin on those accounts.

“It requires a lot of organization and a lot of time,” Bowne says. “The more credit cards you have, the more things you’ve got to juggle and the more things you’ve got to know.”

She adds: “At least now, luckily, your credit card due date will be on the same day each month.”

2. For existing accounts, consider doing a balance transfer from higher interest rate cards to accounts with lower APRs. Some issuers are offering good customers balance transfers of at least a year. Remember that there is a cost of 3 percent or 4 percent of the amount transferred, so weigh that decision carefully. Also, take note of what the new interest rate will be AFTER the promotional period ends. If it’s higher than the rate on the old card or only a few points lower, it may not be worth it to switch.

3. Have a Plan B backup card or two. Issuers can still lower your credit limit and close your account without advance notice. Make sure you have more than one card as a backup in case this happens to you and you need a credit card for emergencies.

4. Charge a small amount on those other cards every other month and pay it off in full when the bill comes. This avoids any dormancy fee that may be assessed and may prevent the company from closing the account for inactivity. Some issuers require a minimum amount of charging to avoid inactivity fees, so check your terms.

5. Young adults’ access to credit will be restricted by the new law. For college students or anyone under 21 who is responsible with credit, the best move could be to get a credit card now while you still can on your own. After Feb. 22, you will have to get an adult (over 21) co-signer and may be asked to show proof you have the ability to pay.

Some Advice Doesn’t Change

“Even if you’re the person who pays off your balance and doesn’t even have any credit card debt,” says Bowne. “They might get a notice that says they’re getting a $100 annual fee. Even people with stellar credit and stellar credit payment histories need to pay attention.”

Here are five smart credit card moves to make before Feb. 22:

1. Consider waiting to get new credit cards until after Feb. 22 because new accounts are protected from interest rate increases for the first year. As issuers compete for new customers in the new reform law landscape, there may be good deals and offers for people with good credit.

If you’ve got a diploma hanging on your wall, chances are it didn’t come cheap. About two-thirds of the 3 million or so college seniors who donned a cap and gown this year took on an average debt of $22,500 for the privilege of earning that diploma. The debt graduate and professional students incur is often tens of thousands more.

As graduates struggle to find jobs during the worst economic crisis of their lifetime, an adviser to the secretary of education expects a rise in the default rate on student loans, which cannot be easily renegotiated or discharged in bankruptcy.

But a provision of the College Cost Reduction and Access Act of 2007 that reduces monthly payments for hundreds of thousands of borrowers who qualify for the new Income-Based Repayment plan took effect July 1.

Borrowers who work in certain public service jobs could also have the balance of their loan erased after making qualifying payments for 10 years. (Supposedly, this costs the government nothing, since it will now change the way it subsidizes student-loan lenders.)

So, will your student loan be bailed out? In a word: maybe.

At the very least, the IBR program will lower the monthly payments of people who accumulated significant federal student loan debt but don’t have the income to make the payments on the standard 10-year repayment plan. This relief may reach as many as 1 million people, according to the Project on Student Debt. And despite lower payments, the former students won’t be paying off their loans indefinitely — any remaining balance will be forgiven after payments are made for 25 years.

Basing loan payments on income isn’t a new concept. For years, graduates with federal student loans had options to reduce or eliminate their payments, depending on how much money they made. But IBR is intended to be more generous.

There are situations in which an IBR payment would be zero. If your payment is so low it doesn’t cover the interest accruing on your loan, the government will pay the interest for three years on subsidized Stafford loans, which are government-backed loans given to financially needy students that do not accrue interest while the borrower is in school.

After that period, and for all of the other kinds of unsubsidized federal loans, unpaid interest will accrue but will not compound. In other words, you won’t be charged interest on top of interest.

Borrowers who think they could benefit from IBR should contact their lender and ask for an application that will authorize the release of their adjusted gross income from the Internal Revenue Service each year.

The news is even more promising for people working in public service jobs: government employees, teachers in public schools and universities, workers at public hospitals and anyone working for a 501(c)(3) nonprofit would qualify. Anyone working in a qualifying job who borrowed from the Direct Loan Program is eligible for loan forgiveness after 10 years, down from 25.

To qualify for forgiveness, borrowers who work in a public-interest position must either have an existing Direct Loan or consolidate a federal loan with a private lender into the Direct Loan Program and make 120 payments after Oct. 1, 2007. The payments do not have to be consecutive, can be made while at different eligible positions and must be made on the income-based or standard repayment plans. (See “Ask for student loan forgiveness.”)

At this point, the burden is on borrowers to document where they were working during their repayment period. The Department of Education is planning to develop a more definitive system to confirm eligibility, but right now borrowers should keep pay stubs and tax documents that verify their work history.

IBR and public-loan forgiveness won’t be the best options for every borrower. Some borrowers — those able to make higher monthly payments — would be better served by sticking with a traditional payment plan to avoid accruing years of additional interest. Graduates who financed their education with private loans are ineligible entirely.

But for an MBA grad who borrowed $150,000 planning to be an investment banker but ended up in government service, IBR will result in payments that are affordable on a civil servant salary.

In recent weeks, a phony e-mail claiming to come from the IRS has been circulating in large numbers. The subject line of the e-mail often states that the e-mail is a notice of underreported income. The e-mail may contain an attachment or a link to a bogus Web page directing taxpayers to their “tax statement.” In either case, when the recipient opens the attachment or clicks on the link, they download a Trojan horse-type of virus to their computers.

Malicious code (also known as malware), of which the Trojan horse is but one example, can take over the victim’s computer hard drive, giving someone remote access to the computer, or it could look for passwords and other information and send them to the scammer. The scammer will then use whatever information they gather to commit identity theft, gain access to bank accounts and more.

The IRS does not send unsolicited e-mails to taxpayers about their tax accounts. Anyone who receives an unsolicited e-mail claiming to come from the IRS should avoid opening any attachments or clicking on any links. People can report suspicious e-mails they receive which claim to come from the IRS to a mailbox set up for this purpose, phishing@irs.gov. Those who believe they may already be victims of identity theft should find out what do by going to the U.S. Federal Trade Commission’s Web site, OnGuardOnLine.gov.